Prior engagement – part one

It’s a truth widely acknowledged that, when in conversation with a London-based social investment expert, you’re never more than six minutes away from discussing social impact bonds (SIBs).

In fact, we’re barely three minutes into my late-June chat with Big Society Capital (BSC) chief executive, Cliff Prior, when the much championed instrument rears its disruptive head.

We’re talking about whether Prior is finding the new role different to what he expected and he cites SIBs as an example of where he’s view from the inside of the social investment wholesale organisation is different to the situation he imagined while looking on (while in his previous role as chief executive of social entrepreneur support organisation, Unltd).

Acknowledging that SIBs are “a contentious area” that will “probably cause people’s eyes to roll” he’s keen to talk about the feedback from organisation funded using the model:

Talking to the charities and social enterprises that have delivered them, I haven’t heard anybody yet who hasn’t said, ‘A painful process, but we come out of it way stronger, and the social impacts are fantastic.’

On the other hand, he adds that: “the financial side is not so good. So, people think of [SIBs] as a finance structure, but actually the thing that’s going well with it is the social side.

While disagreeing with him on many issues, I always found Prior to be friendly and thoughtful during his time at Unltd and these qualities are now combined with clear excitement about taking on his (relatively) new role.

Expanding on the idea that his new sector is often misunderstood, Prior suggests there is a divide in perceptions of social investment between the minority of organisations who have received investment and, in many cases found it helpful, and the “great majority” who “haven’t even looked at it, let alone tried and decided it wasn’t for them.

The missing middle

BSC published research earlier this year  estimating total outstanding UK social investments worth over £1.5billion, made up of over 3,400 individual deals.  

I wonder whether Prior has a broad idea about how many charities and social enterprises in the UK social investment might ultimately be relevant for? He cites some more recently published research highlighting the likely markets:

In the piece of work NCVO did it for us on the most promising territory they were identifying was not the biggest charities and social enterprises, because they can largely do things of their own, and not the smallest, because they’re too small for it to be viable. It’s the middle ground, and certain kinds of organisations in the middle ground.

Prior’s back-of-an-envelope-style totting up – based on a working knowledge of the total numbers of social organisations in the UK is: “If you think of charities and social enterprises that actually hire a team as reflecting what would be an investable group, it probably would be around 50,000 or 60,000.

Though he caveats that with: “What proportion would want to use social investment at any one time? That’s really the question. I think it’s always going to be a minority.

It’s a question that immediately provokes several other questions: “Different kinds of money on different terms, how much would that change? So, for example, pricing of social investment is a very live issue. Is that a determinant that would really make a difference? Is it complexity that makes a difference? Is it risk cover that makes a difference?

Given that the latest state of social enterprise survey from Social Enterprise UK notes that the median turnover of a UK social enterprise is £151,000 and the average amount of finance sought is £60,000. I suggest that in the event that social investors were looking to invest in 50,000 to 60,000 organisations, the size of the deals on offer will be a really big factor.

Prior is (seemingly) not completely convinced: “That’s probably the case. Of course, by number of deals, that will always be the case. By volume of money, it would skew it differently. That’s already the case with the 3,000 that are using it now. The lion’s share of that are things like social bank lending, then some of the funds that have been around for a long while like Key Fund, doing relatively small amounts but to large numbers of charities and social enterprises.

He adds: “I guess what I’m saying is it’s likely not to be one story. There are likely to be different segments of charities and social enterprises for whom different things matter.

These differing priorities are currently being considered as BSC develops its new three-year strategy (the current one ends in 2017). Prior reflects that, having been operating since 2012, BSC is: “not in absolute pioneer zone anymore. We’ve done four years’ work, five years by next year, but we’re still probably in early adopter territory.

As a result: “We will be able to identify a number of plausible scenarios for different parts of the sector. Some of those might look a little bit contradictory. Some of them might say, ‘Actually, it’s pretty close to full commercial financing. It will draw in institutions, and it’ll be big scale.’ That would be a perfectly reasonable approach, for example, for social housing.

Alternatively: “On the other end you might say, ‘Small community organisations.’ You’d have a plausible case to say, ‘Crowdfunding; peer to peer; community shares.’ Those kinds of things would be much more likely to succeed. It’s much more passion led.

State Aid squished my impact

While it’s clearly true that different organisations have different needs, it’s less clear about whether BSC has the flexibility to meet them. Most funds developed by BSC-backed intermediaries only invest amounts of £200,000 or more. I ask to what extent the terms under which BSC was created inhibit its ability to respond to demand from different groups of charities and social enterprises.

Prior’s response is measured, if inconclusive: “Somewhat. Being a wholesaler means there are two levels of cost. There’s our cost, and there’s the retail investor’s cost, apart from the burden on the charity and social enterprise itself. The expectation of a rate of return, that makes some things difficult.

Probably the biggest deal is the question of state aid. Big Society Capital is designed to support the development of a market that’s currently broken or not even there, without distorting. It’s very unlikely, even regardless of a referendum vote*, that any government, European or UK, would not be worried about distorted effects, so would have some similar set of constraints on us.

Over the past four years, State Aid  has played a recurring role as the obscure, incomprehensible bogeyperson often blamed for BSC’s failure to direct its funds to the most obviously underserved areas of demand**.  

It is broadly defined by government as: “Using taxpayer-funded resources to provide assistance to one or more organisations in a way that gives an advantage over others” – and BSC was required to seek State Aid clearance from the EU before setting up the organisation***.

It’s potentially mind-boggling stuff but, considering Prior’s specific point, I struggle to understand how it’s possible to do anything very useful in a market that’s ‘broken or not even there’ without distorting it.

I suggest that if, for example, it turned out there were some investors who were happy to invest in charities and social enterprises for no return beyond getting their money back, and BSC chose to invest alongside them, it would be aligning itself with a market rather than distorting it.

Prior’s response is: “Yes, but if that was all there was, would that ever be enough? You have to think about the shape and size of the social sector. 

He continues: “We’ve identified £1.5bn of socially-minded investment into social organisations. We’ve also identified around £60 billion of commercial investment into the social sector. At the moment, a huge wodge, over £40 billion of that, is social housing. There are plenty of other charities and social enterprises that have big, capital-intensive needs. That’s almost certainly going to exceed any zero-return money that might be available.

Prior goes on to explain the ways that Social Investment Tax Relief could offer an opportunity for investors to get a return while providing small organisations with loans at close to 0% but, given that the wholesaler has £600 million to invest, I’m keen to get an idea of whether BSC is able (or willing) to change it’s own approach to investment to make more smaller, riskier deals more widely available.

While the answer begins with yes, the meaning seems closer ‘no, unless someone else is prepared to subsidise it’:

Yes. There are different ways that we can do it. We can invest into blended finance, as with Access. We can support the development of social crowdfunding.

Social crowdfunding hasn’t had anything like the same journey as yet. Could it? There are other countries where it does. Or might it work more as in the French system, so it’s people choosing to put some of their long-term savings into funds which include a social investment element.

So, yes, there are different ways of achieving different things. This isn’t one story.

Things are getting worse, please take our expensive money

We move on to the question of where social investment fits within the wider landscape of social sector funding. How can social investment help charities and social enterprises respond to the current economic climate?

For Prior: “Social investment is one tool in the toolbox. There is always a danger of people thinking it’s the tool and that has all sorts of distorted effects. Probably a minority of charities and social enterprises will use it but then that’s also true of mass public fundraising: only the very biggest charities that do that sort of thing to any scale.

He makes clear that: “For social investment to be viable, there has to be an income stream. So, is it public fundraising? Is it trading? Is it public service commissioning? What is it? Do those sources generate a surplus? If there isn’t a surplus, you’re not going to be able to pay it back.

For non-asset backed investments in particular, Prior acknowledges this is a major problem: “For charities in particular, completely asset locked, profit locked, rather different for social enterprises, they’re often trying to use debt for things which, in the commercial world, you would use equity or some other means.

He adds: “So, where is this going to work? In general terms, for the social sector, this is probably the worst bear market**** in memory. It is a really tough time and, at the same time, the social needs they’re trying to meet, generally speaking, are rising. I think most charities and social enterprises have come to the conclusion that this isn’t a temporary aberration. It’s not just hunker down and try and survive until better times. This is the new normal.

It’s a picture many charity and social enterprise leaders will be familiar with but Prior outlines a clear hypothesis for the role (or, at least, a role) for social investment in helping organisations find a way forward:  “So, then you start thinking, ‘How can we do things differently? Can we achieve more impact for less revenue?’ I’ve met a number of organisations where the leadership has thought hard and grasped the nettle of, ‘We just have to do it in a very, very different way.’ The change from model A to model B has some cost to it, social investment, on the basis that you’re going to transform the model, and that you will get the income back to do a new style of work.

If that sounds risky, that’s because it is: “Of course, it’s a courageous thing to do and I hugely admire the folk who are doing it. For some charities, it will not be the right thing to do. Financial risk is one thing, but the risk of vulnerable beneficiaries suddenly losing their services is quite another order of consideration. So, this won’t be for everybody but I think that is a particularly important use of social investment in the current circumstances and what looks like prevailing for the next few years, at least.

Part two of this interview will be published next. There’s more on SIBs in part two, I promise.

*The interview took place on June 23rd, the day of the referendum on the UK’s membership of the EU

**Explored in detail in the report of The Alternative Commission on Social Investment, most of which I co-wrote with Dan Gregory.

*** In a recent blog post for Flip FinanceBSC’s former Head of Strategy, Matt Robinson, suggested that the government should: ‘use Brexit to get rid of state aid rules for the UK social sector entirely’.

****Prior is not suggesting there’s a bear market in social investment itself but in the commercial activities – such as delivering public services – that organisations might use social investment to undertake

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Nearest cash points

It is likely that mainstream banks are lending far more money to social enterprises and charities than the ‘social investment market’. That’s the headline news from The Forest For The Trees, a new report I’ve co-authored with Dan Gregory for the bank, RBS.

The report explains that RBS has around £250 million in lending outstanding to the social sector and, if replicated across all banks, this would amount to total lending of over £3 billion. There’s also a huge level of overdraft finance available to social enterprises and charities from mainstream banks: nearly £100 million from RBS alone, £1.2 billion is replicated across all banks.

These are big numbers and it’s big news, not least because it’s the first time (to our knowledge) that a bank has provided this kind of information on its lending to the sector. While the past six years have seen rapid scaling in the rhetoric and survey-based branches of the social investment report industry, generation of meaningful data has been stuck firmly in the start-up phase.

Much of the new data in our report was generated by matching a database of nearly 200,000 social organisations (charities, CICs, CLGs and Community Benefit Societies) with RBS’s customer database. Around 16,000 (8%) of those organisations were active RBS customers and our report provides information about lending to and saving by those customers.

Size matters 

The volume of lending is significant compared to the ‘social investment market’ as encapsulated by social investment wholesaler, Big Society Capital‘s report The size and composition of social investment in the UK, published in March this year. That report reveals total outstanding social investment of £1.5 billion, however this includes £427 million of investment in ‘Profit with Purpose’* organisations and equity investment as well as lending.

Potentially more significant, though, is the fact that the average size of loans from RBS (around £350,000) is significantly small than the average size of investment within the ‘social investment market’ (over £600,000). This is important because a key reason (possibly *the* key reason) why social investment has been enthusiastically promoted by the UK’s sector leaders, and both trumpeted and subsidised by our politicians, is that it’s meant to fill a gap.

Research research from NCVO Understanding the capacity and need to take on investment within the social sector notes that, in terms of investment needs of different groups of charities: “the highest average loan amount by sector is £116,000” while Social Enterprise UK’s most recent State of Social Enterprise survey suggests the median amount of funding or finance sought by social enterprises was just £60,000.

While the exact figures vary from survey to survey, the broad picture is remarkably consistent. As Social Investment Business chief executive, Jonathan Jenkins, noted in March:

Find the gap 

Our report suggests that claims such as charity-focused bank, CAF’s suggestion that: “many commercial or high street lender simply don’t have the appetite for lending to charities” should be treated with caution. Mainstream banks lend vast amounts of money to charities and social enterprises and there’s no evidence that they are disproportionately unlikely to lend to the sector.

That matters but it unequivocally does not mean that the problem of providing appropriate finance for charities and social enterprises has been solved. As the report of The Alternative Commission of Social Investment (most of which Dan and I wrote) noted last year: “There may be some unmet demand in certain segments of the market, such as for cheap, risky, long term growth finance in the tens – but not hundreds – of thousands.

While mainstream banks may be doing more than many of us previously thought to provide small amounts of relatively risky short term finance in the form of overdrafts, there is no evidence that they’re providing unsecured, long term growth finance on any significant scale. If you need an extra £5,000 or £10,000 for a month or two because you’re waiting for a big customer to pay up, your bank may be able to help. If you want to spend £15,000 – £50,000  on trying something new (or offering more of an existing service) – and you’re not likely to earn the money back for a year or two – an overdraft isn’t the right option.

This is a gap that social investment could fill. Unfortunately, Big Society Capital-backed social investors (the artists formerly known as SIFIs) are not currently filling it – and, based on the type of finance available to them, they are not able to. While Access may be part of the response to that problem, there is a need for wider consideration of what publicly supported social investment is actually for.

What happens next?

 

Our report provides nine recommendations split between: ‘social sector organisations’, ‘banks’ and ‘policymakers and social investment experts’.  These include:

Social sector organisations seeking investment should understand that there are a range of routes to finance – some of which may be labelled ‘social investment’, some of which may not.

RBS and other banks should continue to explore new ways to make affordable finance available to social sector organisations including: direct lending, investment in SIFIs, and/or community lenders (including credit unions), referrals and facilitating individual investment.

and

Social investment policymakers and experts more clearly understand and articulate how their services and products are meeting unmet needs of social sector organisations.

 

There’s a potential next phase of work on access to finance for charities and social enterprises (which may or may not be carried out by us) to get a clear picture of which providers are best placed to fulfill which functions:

  • Are there some functions – for example, loans of £25,000 or less – where government could provide subsidies/guarantees to mainstream lenders (both banks and peer-to-peer platforms) to enable them to lend to more social organisations?
  • Could mainstream banks play a bigger role in providing finance for Credit Unions and SIFIs to enable them to lend/invest more?
  • Are there ways that mainstream banks could provide opportunities for individual customers to invest in charities and social enterprises?
  • In what circumstances is it really important that an organisation is able to take on investment from an investor who is specifically socially motivated?

The Forest For The Trees is hopefully the beginning of a useful discussion about the role of mainstream banks in supporting positive social change. It would be great to see more banks following RBS’s lead in making their data available and supporting this kind of research – and it’s vitally important that social investment leaders consider more clearly the gaps they are seeking to fill and the reasons why they are best placed to fill them.

 

*While readers of previous post my be aware of my views on the issue, in this instance I am not making a point either way about the status of ‘Profit with Purpose’ organisations as ‘social enterprises’ or ‘social businesses’. I have separated this figure because as Companies Limited By Shares (CLSs), these organisations are not included in the charity and social enterprise database we used to generate data from RBS.

 

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Social enterprise and ‘the ailing third sector’

A couple of readers may have noticed that there’s been a shortage of Beanbags posts in recent months. This is mainly because I’ve working on lots of other writing including:

but blogging is important and I’m keen to respond to Andy Brady’s recent post: “Can social enterprise revive the ailing third sector?”

While umbrella leaders will point out the many charities to which the problems raised are not directly applicable, it’s a good overview of the challenge for the particular part of the professionalised, service-delivering voluntary sector that’s currently facing up to the end of government grants and increased competition for other grants and donations.

My instinctive responses to the central question were: (a) to note that it might’ve revived the ailing (section of) the third sector already, and mostly hasn’t and (b) to wonder what problems social enterprise solves that traditional voluntary sector approaches don’t.

Social Enterprise has been the next big thing for a really long time

On (a), Andy’s blog focuses specifically on the example of Furniture Resource Centre (FRC). FRC are one of a handful of long-established, relatively large social enterprises – HCT and Greenwich Leisure are other, larger examples – who (while they have existed for longer) came to prominence and began to grow significantly in the early-2000s New Labour golden era of social enterprise.

These organisations are rightly acclaimed for their successful track records but – with the possible exception of some public sector spin-outs – it’s not clear that there is a new generation of social enterprises emerging with the ability to operate at a similar level.

As a self-confessed social enterprise nerd, if a friend or family member asked me to name some social enterprises they might have heard of, I’d still name either these examples or some of the handful of famous consumer-facing social enterprises from (roughly) the same era: The Big Issue, Fifteen, CafeDirect, Divine Chocolate.

These 7 organisations would have been 7 of the 10 (off-the-top-of-my-head) most famous social enterprises in 2005 – I probably would’ve added The Co-Operative Group and The Phone Coop, and possibly John Lewis – and would still be 7 of my 10 now.

Aside from London Early Years Foundation (LEYF, which existed in 2006 but wasn’t a prominent social enterprise), there’s no obvious new entrants to the list in 2016.

While we may have seen a big increase in overall social enterprise activity over the past 10 years, and a few large contract-focused charities such as Turning Point and Catch 22 have rebranded themselves as social enterprises, we haven’t seen the emergence of a significant number of widely recognised social enterprise brands.

This is not to assume that a social economy characterised by growing numbers of large, well-known social enterprises is necessarily desirable but I think many of us expected it would’ve emerged by now and it hasn’t.

Taken for granted

When it comes to (b), Andy gives a decent overview of some of the difficulties facing the traditional charitable sector over recent years, followed by the FRC example of a social enterprise that has been successful providing services that have a viable trading model – through the combination of local government/housing contracts and people buying furniture.

I’m not sure how far this helps us to understand whether or how social enterprise is an alternative to grant and/or donation based models.

With the (possible) exception of The Big Issue, all our two hands full of famous social enterprises – and the relatively big newer social enterprise spin-outs we haven’t heard of – have succeeded by entering existing markets and competing successfully with private sector providers.

This is difficult because they have to:

  1. provide products and services that people want to buy
  2. provide those products and services at a price people want to buy
  3. do additional social good either in the process of provide those goods and services, or on top of providing those goods and services

But it’s not as difficult as trying to trade in a market that doesn’t exist.

As we at Social Spider CIC found out when trying to create a commercial model for a mass circulation mental health magazine , it’s hard enough when the reason that a market doesn’t exist is that there’s some people who plausibly might buy your product or service but they choose not to.

Unfortunately, the situation for many of the most socially vital grant/donation funded charities is much worse than that: they are operating in situations where there isn’t a market because a customer does want and/or need their service – whether it’s a food bank or mental health support group – but can’t pay for it.

Taken together, the facts that:

  • your charity exists because the market doesn’t meet a particular social need
  • the government is unwilling or unable to pay you to meet that need
  • and you can’t get (enough in) grants and donations to meet that need

do not add up to ‘social enterprise is the answer’. They are more likely to add up to ‘we have to close’.

LEYF, my single example of a new, well-known social enterprise emerging in the past 10 years, are a phenomenally rare example of a charity taking (an adapted version of) their grant funded service, flipping the business model and selling the service successfully in an existing commercial market.

There is definitely more than one charity in the UK with the potential to do that but it’s highly unlikely that there are thousands.

The question is whether, if grant/donation funded charities can’t just sell their grant/donation funded services to a market, social enterprise can enable them to do something else.

If you’re currently a grant/donation funded charity: does your social track record provide you with any kind of commercial advantage that would help you to create a viable trading business? And will the business you could create help you to meet the social need you were previously meeting through grant/donation funded activities?

Charities who can’t answer a strong “yes” to both of those questions shouldn’t set up a social enterprise. Just because there are fewer grants and donations to be had, that doesn’t make trading a better model for paying for products or services that no one wants to/can buy.

Where that potentially leaves us with is gaps where the market is not meeting social need, government is not meeting social need and the organisations that were created in response to market failure have themselves failed to attract grants and donations. And that’s the gap for social enterprise. Where do we sign?

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Learning from experience – part one

In a comment on my previous blog on the pipeline of bad ideas in social enterprise, Nick Temple offers a partial defence of the actions of social entrepreneurship support organisations, noting that their work often involves supporting ‘biographical social entrepreneurs’ – people for whom a social entrepreneurship is a response to personal experience.

In another recent blog, Tackling Heropreneurship, Daniela Papi-Thornton of Skoll Centre, makes some points similar to mine but also bemoans the fact that she has: “watched more and more students focus their ventures on problems they haven’t lived, such as building an app for African farmers when the founding team has neither farmed nor been to Africa“.

They’re not wrong. There is no question that personal experience is important in social enterprise. The challenge is to understand how and why it’s important. The post is part of a series of (at least) two and the other one will be more positive!

How does it feel?

Nick makes the point that the fact that biographical social entrepreneurs have: ‘experienced the problem they are/were trying to solve… in theory at least, gives them some understanding of the problem’.

At a basic level, this is self-evidently correct.

If you are (or have previously been) long-term unemployed you know how it feels to be long-term unemployed – in the sense that you know what long-term unemployment feels like for you.

If you have a diagnosis of a mental health condition, you know what it’s like for you to live with that condition.

In both of these examples (and many others) people with experience are experts in their own experience but there are at least two fundamental questions that this experience  does not (in itself) answer:

  1. To what extent does someone’s specific personal experience enable them to usefully understand a wider social problem beyond that specific personal experience?
  2. In the event that the answer is ‘to a great extent’ – to what extent does that understanding enable them to use their understanding to solve a problem for enough paying customers (including grant funders and donors) to create a viable business?

In terms of question 1, there are many factors that determine whether someone’s experiences enable them to understand other people’s experiences and the practical challenges flowing from them.

One is where that specific experience sits within that individual’s wider life experience: Has the long-term unemployed person (Nigel/Nigella) ever had a job? Are they unable to get a job at all – or unable to get a job in their chosen profession? Do they have dependents?

Another is where Nigel/Nigella’s experience sits within a wider social and economic context: Is the problem that Nigel/Nigella is unable to get one of the jobs that are available in their local area? Or are there no jobs in the local area to apply for?

The point is not that one experience of any of the possible permutations is more valid or real than another but that the relevance of those experiences to the creation of a social enterprise to ‘solve the problem’ will vary greatly.

More bluntly (and this may seem obvious but experience from the world of social entrepreneurship support suggests it isn’t) the fact that Nigel/Nigella has failed to get a job over a long period of time – either at all, in a particular industry or based on a series of specific challenges – doesn’t (in itself) qualify them to help other people get jobs.

Nigel/Nigella’s experience of failing to get a job may give them a strong desire to start a social enterprises to tackle unemployment, along with some ideas about services that might be helpful. It doesn’t (in itself) mean that those services are likely to work.

In other cases, the specific nature of someone’s experience may mean they just don’t know how that experience feels for someone else.

This is my truth, don’t tell me yours

Once again this maybe be because of their personal situation. So while that fact that Oliver/Olivia’s diagnosis with a mental health condition was followed by immediate specialist treatment at a private hospital doesn’t make their experience of that condition any less real, it does limit their ability to immediately understand the situation of someone who is currently waiting 18 months for an NHS appointment to help them live with the same condition.

In other instances, one person’s experience may make them less rather more able to empathise with other people who experience a similar situation in a different way.

For example, Oliver/Olivia may have found that, for them, medication is not helpful but the combination of meditation and exercise enables them to manage their condition successfully.

That perspective is valid and relevant but, if setting up a social enterprise with a general aim of helping people live with their condition, it needs to be understood as an individual experience – which may or may not be other people’s experience too.

A big danger for ‘biographical entrepreneurs’ is that they risk not being able to distinguish between their individual personal experience and ‘THE TRUTH’ about a social problem – and their social enterprise ends up as a mission to impose their truth on other people (and prevents them for understanding whether/why other people might need/use a product or service they offer).

While question 1 break down into lots of other (more complicated) questions, it’s ultimately the easier one to answer. You can use your personal experience as the impetus to develop a broader understanding of a social problem beyond your personal experience if you want to.

Sounds great, who’s paying?

What it comes to question 2, the answer is shorter but the problem is bigger.

In his latest book, The Frugal Innovator, Charles Leadbeater notes that: “An innovation is only successful if it can answer several questions and risks: will the technology and the product work?; will consumers want it?; can it be made reliably at scale and can a business make money from it? An innovation can fail at each of these stages.

Experience-based understanding of ‘the problem’ might in some circumstances enable a social entrepreneur to answer one or both Leadbetter’s first two questions but it’s highly unlikely to provide answers for the third and fourth ones.

Nigel/Nigella’s personal experience might provide the starting point for a great idea for a service that will help long term unemployed people get a job but it’s unlikely to be a significant factor in whether their social enterprise can generate income as a Work Programme sub-contractor.

Oliver/Olivia’s personal experience might enable them to come up with a great scheme that supports those who want to manage their mental health condition through meditation and exercise to do so, it won’t help them work out what combination of grant-funding, NHS contracts and self-funding payments is necessary to make the numbers add up.

The mistake that social entrepreneurship supporters have often made – either explicitly or through omission –  is to assume that personal experience of a social problem inherently represents meaningful research into the market conditions for solutions to that problem. It doesn’t.

None of this is intended to suggest that being a ‘biographical social entrepreneur’ is a bad thing but we need to think more carefully about what it takes to get from the impetus to solve a problem based on personal experience to a viable social enterprise.

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I started a social enterprise to save the world but all I ended up with was a failing t-shirt business

Over the years I’ve attended quite a few events where people in the process of starting new social ventures* ‘pitch’ their idea to a panel and/or wider audience. And on several occasions I’ve been one of those people. Even when allowing for our individual pitching abilities, many of these ideas are transparently absurd (at least, to everybody else).

The stereotypical starting point (type one) for wannabe social entrepreneurs – even once they’ve had enough absurd ideas to be tagged as a ‘serial social entrepreneur’ – is that they have an idea that offers significant social impact but doesn’t work as a business.

They want to do x thing for x group of people, there’s at least a plausible suggestion that x group of people might want it and it might really be useful but x group of people have no money to pay for it. So the type one social entrepreneur faces the (often insurmountable) challenge of finding *some other way* of paying for it.

At the other end of the spectrum (type two), there are nice people who want to start a business doing something they’re good at and, because they’re nice people, they feel compelled to contort their business plan in a bizarre way to include what seems to outside observers to be an entirely unrelated social element.

Social sourdough

So fictional social venture ‘Pizza, Love and Understanding’ is a pizza parlour but it’s going to deliver real social change for ‘disadvantaged groups (specific group – tbc)’ by using the profits to pay for them (the ‘disadvantaged groups’) to take part in workshops which will generate art with a strong social message to be displayed on the wall of the pizza parlour.

And because it’s important that disadvantaged groups are recognised as real artists they will be paid for their art (possibly in pizza).

Type two is mostly ignored as there’s no point wasting energy being rude to well intentioned people who will (in most cases) soon recognise their mistake and get on with trying to run a pizza parlour. That’s a good result. Pizza parlours that sell good pizza and pay decent wages are a good thing.

Extreme basket weaving

There is a type three, though. People who, once again with the best of intentions, find themselves pursuing an idea for a social venture that combines the absence of a business model with a lack of clear potential for social impact.

Are you building an online one-stop-shop for young people who want to bring communities together through the medium of extreme basket weaving?

Is the business model ‘corporate sponsorship’?

If so, look away now.

Once again, while the real life equivalents of fictional social venture ‘ComYOUnityBasKITcase’ are far less actively stupid, the basic recipe is the same.

Ingredient one – something you (at best) know how to do well or (at worst) have recently heard of

Ingredient two – a positive but non-specific and essentially unrelated social aim

Ingredient three – a broad category of funder/customer that you think has lots of money to spend on good things

Method – Attend pitching event. Get a grant from Unltd. Don’t sell anything. Attend conference to complain that funders/investors/customers never fund/invest in/buy innovative ideas. Repeat for 1 to 5 years.

I can’t say for sure whether type three social venture ideas are becoming more prevalent but there is certainly a strong, well established pipeline and it’s not clear that social entrepreneurship support organisations have a humane strategy for putting them (the ideas, not the people who have them) out of their misery.

Youth hostelling with Chris Eubank

As Alan Partridge memorably demonstrated, some of the worst ideas (many of which the advent of digital TV has since brought to fruition) are motivated by the toxic mix of panic and desperation. But, while parody TV hosts need to have terrible ideas, aspiring social entrepreneurs don’t.

There is another route. That is to start by putting some time and effort into researching the social change you want to make. It’s not necessary for all social entrepreneurs to single-handedly solve a problem for the whole world in the Ashoka style but it is necessary to solve a problem at some level for someone.

The best way to do that is to work out what the problem is. What annoys me most about the prevalence of stupid ideas for social ventures is that it’s not as if we have a shortage of problems for clever, socially-focused people to take a look at.

How do we look after people who are living longer but need additional help to have a good quality of live in old age?

How do we support people with severe and enduring mental health problems when institutional treatment is both unaffordable and undesirable?

How do we connect with the young people who would really like to weave baskets in an extreme way to help their communities, and give them the online tools they need to do it?

Creating a successful business to address a social need is really difficult but working out where to start is not as difficult as some of the organisations theoretically supporting social entrepreneurship and social innovation in the UK currently make it look.

Ephemeral tosh

If you want to start venture (and you live in a major metropolitan) it’s virtually impossible to avoid support designed to develop your basic business skills – and plenty of support for (often, small and unproven) social ventures to ‘scale-up’.

There’s very little work being done to help social entrepreneurs actually become skilled and knowledgable in the things they’re trying to do – or to put people who are skilled and knowledgable together with people who’d just like to do something good to see if they could do something together.

In that context, it’s not surprising we end up with so much ephemeral tosh and so few successful social ventures addressing real social need.

Keep it stupid

None of this means it’s desirable to discourage people from pursuing really stupid ideas for social ventures.

Lots of great (or, at least, quite good) ideas emerge from the dregs of really stupid ones. Pizza, Love and Understanding’s incongruously worthy arts workshops might ultimately be the starting point for the creation of an arts organisation that does create some great art and/or some positive social change while not needing to be connected to a pizza parlour.

And the social entrepreneur who created ComYOUnityBasKITcase might come out the other side with the hard-earned practical experience they need to do much something more useful next time.

It’s not social entrepreneurs and our stupid ideas that’s the problem, it’s the dearth of support and funding to help us develop the knowledge, and find the time and space to move beyond them.

 

*In this context, a ‘social venture’ could be a charity, social enterprise or other any organisation/activity initiated with the aim of make the world a better place (at least partly) by selling stuff

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What’s Next For Big Society Capital?

“… With new CEO, Cliff Prior, poised to take up his role in March 2016 and growing interest in setting up similar institutions elsewhere in the world, it is worth considering the extent to which this principle is currently being fulfilled. As it stands, to what extent is it accurate to describe BSC as a wholesaler? … ” – My blog as part of the Flip Finance ‘What’s next for Big Society Capital?’ series.

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The search for scale

A guest post from Dan Gregory.

For a few weeks now, an exchange I read on social media has been nagging away at me.

Venerable Australian academic and social innovation expert Nicholas Gruen was quoted at a conference saying that “No country has significantly scaled a piece of social innovation”. Then US social impact investment expert Steve Goldberg heartily seconded this, saying that “Social innovation has not scaled.  Full stop.”

At the time I thought this was just a bit strange. I wondered for a moment how schools and hospitals fitted into Nicholas and Steve’s worldview but didn’t think much more of it. Perhaps something was just lost in translation. But the thought still nagged me.

Then David (who is kindly hosting this blog as, unlike me, he knows how to enable comments on WordPress) mentioned he had seen the same exchange. Then this week I discovered my proposal to be part of the Maintainers Conference was successful. For more on the conference see here

My proposal is focused on how charities, voluntary and community groups and social enterprises across the UK undertake essential maintenance work every day, sometimes ignored and forgotten. Yet meanwhile, the Government and many funders and financiers tend to get rather more excited about innovation and the digital, creative, incubator-based social ventures which all sound very exciting and promise radical change and transformation. The UK seems to be in the midst of a pandemic of disruptive social innovation hubs, accelerators and incubators. This seems to me like a sort of fetishisation of innovation.

This prompted me to wonder – is my confusion at Nicholas’s and Steve’s comments linked to these two very different perspectives?  Perhaps the quiet work of suburban or rural community-based charities is being ignored? Perhaps what happened 100 years ago when social action led to the birth of the welfare state is just all a bit boring and far away? Perhaps it’s just not interesting to Steve and Nicholas? Does a passion for a narrower, more instrumentalized version of social innovation today distract us from the wider, more organic role of social action and social enterprise in shaping markets and the state over the long term? Urban tech disruption hubs are cool and exciting, right? Right?

Perhaps always looking forward for the next exciting innovation explains Steve’s and Nicholas’s blindspot for how schools, hospitals, food banks, homeless shelters, charity shops, recycling projects, credit unions, citizens’ advice bureaux, fundraising marathons, bike workshops, co-operatives, unions, libraries and babysitting circles have reached such a scale today to become part of the very furniture of our lives. Perhaps scale is boring?!

Or are Steve and Nicholas right that social innovation has really never scaled? Is the blindspot mine? What am I missing? Steve? Nicholas? Help!

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